UAE’s changing foreign ownership laws could threaten freezones

Although freezones specialising in particular business activities, such as logistics and manufacturing, will likely prove more resilient.
Freezone, Uae, Dubai, Foreign investment, Fdi

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UAE free zones will ‘struggle to survive’ under the UAE’s new 100% ownership law, according to Dr Habib Al Mulla, chairman of Dubai law firm Baker & McKenzie.

The legislation, set to be introduced in Q3 this year, will weaken free zones’ bestselling proposition, which is full ownership without a local partner, Dr Al Mulla said.

“What will suffer ultimately, I think, are free zones. They will need to find another niche for themselves because their main and bestselling proposition is 100% foreign ownership - apart from the financial zones which have different propositions,” he said.

“That will slowly disappear in 5, maybe 10 years, and unless they find themselves another niche, I think they will struggle to survive,” he told Logistics Middle East’s sister publication Arabian Business.

Al Mulla added that freezones specialising in particular business activities, such as logistics and manufacturing, will likely prove more resilient.

“Of course, some of them will continue to survive because of, for example, logistics, goods, but others will fade and disappear slowly or will become specialised zones or will have to innovate and come up with some new concept,” he said.

Across the board however, Dr Al Mulla expects the new ownership law to offer lower charges on the mainland than those presented in free zones.

“If you ask any foreigner who is investing in a free zone why he is going to a free zone, it is probably because he can enjoy 100% ownership of his company. If that is available to him in mainland at a more reasonable cost, why should he not go there?” he said.

“If I was now a director of a free zone, I would be concerned. I will immediately think of the cost I am charging my tenants, I would think of my process and procedures, I will try to make it easier, maybe move to an online portal with my processes. I will need to give the investor something that they will not find on the mainland. Otherwise, it will be an issue for them,” he said.

Neil Petch, chairman of UAE-based business setup consultants Virtuzone, disagrees, arguing that freezone will continue to be the backbone of the UAE’s start-up community.

“The role of free zones, now numbering over 50 in the UAE, is here to stay,” he says. “Each freezone has a sweet spot and specific segment to target and serve, but they share a low cost, light touch, low tax make-up that particularly suits start-ups.”

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